Can a Trust Motivate My Kids to Work Harder?
A key concern for high-net-worth families is the loss of “generational wealth.” According to Forbes, 70% of high-net-worth families lose their entire fortunes by the second generation. By the third generation, 90% of these wealthy families have lost everything. Many parents are well aware of these statistics – including some of the most well-known celebrities in the United States. An obvious example is Warren Buffet, who is reportedly leaving behind almost nothing of his multi-billion-dollar empire to his children. What kinds of estate planning tools can you use to combat the loss of generational wealth? Could a trust motivate your kids to work harder? This is something you might want to discuss with a Tampa estate planning lawyer.
What Is an Incentive Trust?
An incentive trust sets forth specific conditions for your beneficiaries. In order to access the funds within the trust, your beneficiaries must meet these conditions. These conditions could motivate your children to accomplish certain life goals, and an incentive trust can be extremely flexible in this regard. The trustee is responsible for assessing whether these conditions have been met, and they will not distribute the funds until this date.
A common requirement for an incentive trust is the completion of a college degree. With this type of trust, you can feel confident that your beneficiaries will feel motivated to pursue a higher education. College degrees are often correlated with higher earnings, and this could help protect the generational wealth within the family.
Another common requirement for incentive trusts is sobriety. If you have a beneficiary with substance abuse problems, this could ensure that your hard-earned fortune is not wasted on drugs or alcohol.
The Dangers of Incentive Trusts
While parents may have very specific ideas about what their children should accomplish, incentive trusts have the potential to negatively affect a beneficiary’s life. If you create financial incentives to complete a specific college degree or pursue a certain career, this could push your child into a path they do not enjoy.
Consider less specific requirements to avoid lasting bitterness and resentment. For example, a common condition is that the child simply works at least 10 months out of the year in order to access their annual trust distribution. This approach allows your child to pursue a career they feel passionate about – but it still motivates them to work.
Discuss Trusts Alongside an Experienced Estate Planning Lawyer in Seminole
One of the most interesting things about trusts is their flexibility, and you can choose a trust that targets your family’s unique challenges. To discuss your family’s specific circumstances in more detail, consider a consultation with Knudsen Law. Our experienced New Port Richey estate planning lawyers can help you choose a trust that preserves your family’s generational wealth. The right trust can motivate your children to add to the family fortune – not deplete it. Reach out today to get started with an action plan.
Sources:
investopedia.com/terms/i/incentivetrust.asp
forbes.com/sites/forbes-shook/2023/08/24/dont-risk-it-all-areas-of-focus-for-high-net-worth-families/#:~:text=It%20is%20estimated%20that%2070,how%20to%20make%20financial%20decisions.